Getting Started with first flip

18 Replies

I've started looking around for a property that I can buy as my first flip. I've been reading J Scotts book on estimating rehab costs and have started building some of my own spreadsheets from his templates for estimating costs of materials and labor. I spent several hours going through Lowe's writing down the ranges for all the materials so that I can build that into my spreadsheet calculations. 

I have an LLC set up and I'm already pre-approved for financing through a hard money lender so I've got those boxes checked already as well.

I've heard a lot of people say add extra time and money to your budget on your first deal so I'm trying to use the Fix and Flip calculator on BP and plan for 270 days to buy, fix, and resell. I'm also planning to include a 10% buffer over my planned expenses...and my hard money lender requires another 10% above what I project as a cushion as well. Then I'm looking to make a $15k in profit, since I figure this is another buffer that I'd have to work with. 

I know I'm not providing specifics on a property, but I guess my question is does this seem conservative enough guideline for analyzing a first fix and flip deal? 

If I make $15k (or more by finishing earlier or coming in under budget) than great, but for my first deal I'll be pretty happy as long as I don't lose money and I learn a lot in the process. 

Thanks for your thoughts and assistance everyone!

That all sounds very reasonable...

One thing I would point out -- your fixed costs will be higher than typical because of the hard money loan (appraisal, loan charges, inspections, mortgage payments, etc.).  Just make sure you know what your loan costs will be and factor them into the analysis...

I'm also looking to do my first fix and flip. Who did you use for your hard money loan ?

@James Masotti - I think we could help you out more if you provided some specifics. A 15k margin on a 75k ARV home is great. Not the same case if you are talking about a 250k house.....

@J Scott

I have all of that factored into the fix and flip calculator. My HML sent me a sample breakouts for their 12 month loan program, so I built a spreadsheet that calculates all of their costs, both up front out of pocket, and ongoing monthly holding costs which I can then plug into the fix and flip calculator.

@Glen Page

I just went through the HML in the BP database. I'm looking to do deals in both South Jersey and Delaware, so I was looking for one HML that would lend in both areas. The one I decided to go with was Rehab Financial - http://www.biggerpockets.com/co/RehabFinancial

Account Closed- Most of the houses I am looking at would have an ARV of around $140k-170k.

Hi James, looks like you are in great shape. You laid the groundwork now go make an offer on a property.

The advice I can offer based on my experience is instead of giving yourself more time to complete the project have more contingency plans. For example; when a contractor stops showing up halfway through the job make sure you have a second ready to go. Another example is, talk to an experienced realtor to find out everything that could go wrong in a transaction then come up with a few options based on those pitfalls.

It's true, you don't know what you don't know until you realize you don't know it but as long as you have some plan B's and plan C's the project will keep moving in the right direction. 

Best of luck!!!

You've done way more homework than I did before I jumped into my first flip. I was hoping  @J Scott would comment and since he wrote the book on flipping and gave his conditional approval I hope you just go to work my friend.

Best of luck to you my friend.

@Jason Hern Thanks for the advice! Contractors are definitely an area of concern. Part of why I gave myself so much time was in finding contractors and such. I have a few I know from doing work on my primary residence and through work relationships that I'm hoping they can steer more towards some good references. 

@Dana Whicker - You're definitely right that having J Scott say I'm not crazy is reassuring. Hopefully now I'll find a property soon where the math makes sense.

Thank you and good luck

Hi James: I'm impressed with your level of preparation for your first flip but am interested to know how much you know about the actual work involved in a renovation. As I've said before, even if you don't plan to do the work yourself, you'll be much better off if you learn as much about it as possible so you will at least be able to communicate intelligently with your contractors. Best of luck and we'll be waiting to hear all your news.

Originally posted by @Maggie Tasseron :

Hi James: I'm impressed with your level of preparation for your first flip but am interested to know how much you know about the actual work involved in a renovation. As I've said before, even if you don't plan to do the work yourself, you'll be much better off if you learn as much about it as possible so you will at least be able to communicate intelligently with your contractors. Best of luck and we'll be waiting to hear all your news.

I had to fully renovate my first primary residence (not a gut job, but everything but the bathroom and windows were redone). So while I'm definitely not an expert, I do have at least a small amount of reference to draw from. That having been I'm sure I'll do plenty wrong on this first flip and I'm hoping the good relationship I have with the two contractors I'll be working with will be beneficial for filling in any knowledge gaps.

Originally posted by @James Masotti :
Originally posted by @Maggie Tasseron:

Hi James: I'm impressed with your level of preparation for your first flip but am interested to know how much you know about the actual work involved in a renovation. As I've said before, even if you don't plan to do the work yourself, you'll be much better off if you learn as much about it as possible so you will at least be able to communicate intelligently with your contractors. Best of luck and we'll be waiting to hear all your news.

I had to fully renovate my first primary residence (not a gut job, but everything but the bathroom and windows were redone). So while I'm definitely not an expert, I do have at least a small amount of reference to draw from. That having been I'm sure I'll do plenty wrong on this first flip and I'm hoping the good relationship I have with the two contractors I'll be working with will be beneficial for filling in any knowledge gaps.

 Good to know you have had that experience and I'm sure it will help you with your upcoming flips! Yes, you can learn a lot from your contractors if they're willing to share their experience; that isn't always the case when you're a woman... they tend more to try to make things sound more complicated than they really are and I've had several incidents where they outright lied to me.  I'm older, so probably give the impression that I wouldn't know a hammer from a screwdriver, but I've renovated -- with my own two hands -- more bathrooms and kitchens than I've ever cleaned, so more than once I've had the pleasure of turning that around on them LOL. 

@James Masotti , Have you listened to @J Scott's Podcast #10? He talks about what went right and what went wrong in his first flip and specifically mentions building your profit into your calculations, rather than having your profit be whatever is left over. You make your money when you buy.

@Jason Hern 's advice for contingency plans is spot-on. It never hurts to be prepared and upfront work saves backend hassles.

@Mindy Jensen - Its been awhile but I have listened to both of @J Scott's podcasts. I do remember him saying about building your profit into the flip. That's one of the nice things about the BP Fix and Flip calculator is that it makes you put in a a profit number (although I guess you could put in zero? I've never tried that since it just seems silly) 

Originally posted by @James Masotti :

I've started looking around for a property that I can buy as my first flip. I've been reading J Scotts book on estimating rehab costs and have started building some of my own spreadsheets from his templates for estimating costs of materials and labor. I spent several hours going through Lowe's writing down the ranges for all the materials so that I can build that into my spreadsheet calculations. 

I have an LLC set up and I'm already pre-approved for financing through a hard money lender so I've got those boxes checked already as well.

I've heard a lot of people say add extra time and money to your budget on your first deal so I'm trying to use the Fix and Flip calculator on BP and plan for 270 days to buy, fix, and resell. I'm also planning to include a 10% buffer over my planned expenses...and my hard money lender requires another 10% above what I project as a cushion as well. Then I'm looking to make a $15k in profit, since I figure this is another buffer that I'd have to work with. 

I know I'm not providing specifics on a property, but I guess my question is does this seem conservative enough guideline for analyzing a first fix and flip deal? 

If I make $15k (or more by finishing earlier or coming in under budget) than great, but for my first deal I'll be pretty happy as long as I don't lose money and I learn a lot in the process. 

Thanks for your thoughts and assistance everyone!

 James I am also an investor in NJ. What are you target areas? 

From my limited experience, I think flipping is highly risky and overrated and most likely then not, will result in loss and a considerable amount of stress, esp for a newbie investor

Flipping can bring in some good money ONLY if you put in the sweat equity. In other words YOU will have to physically do most of the heavy duty work  and sell the house yourself without an agent. 

I dont mean to discourage anyone, but imo flipping is just too risky and simply not worth it for MOST individual investors UNLESS you are extremely handy with most construction work and willing to spends hundreds of hours AFTER work to fix the place up.

Originally posted by @Chin May :

From my limited experience, I think flipping is highly risky and overrated and most likely then not, will result in loss and a considerable amount of stress, esp for a newbie investor

Flipping can bring in some good money ONLY if you put in the sweat equity. In other words YOU will have to physically do most of the heavy duty work  and sell the house yourself without an agent. 

I dont mean to discourage anyone, but imo flipping is just too risky and simply not worth it for MOST individual investors UNLESS you are extremely handy with most construction work and willing to spends hundreds of hours AFTER work to fix the place up.

Chin May, I've flipped properties both ways (by investing that sweat equity every night and weekend and by hiring contractors). While having the ability to step in and finish a project when a contractor disappears has been very helpful to me on my flips, it seems to me that many investors are indeed making money on flips without investing sweat equity. It's mostly about the numbers! 

If you do your homework, purchase the property at the right price, factor in the cost of contractor(s) when calculating rehab costs, flipping can still be profitable, even for the first-time investor. 

Of course, my profit may be lower when I hire contractors, but when I factor in the time saved (I can flip much faster when I have someone working on the property full-time, thus reducing holding costs and increasing the number of flips I can do in a given period of time) and the fact that while someone else is working on the project, I can be working to find my next one, at this stage of my short career in flipping, I vote for the somewhat lower profit margin that keeps me from spending every waking moment either at my "real" job or working on my flip!

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